In this article, we discuss BlackRock’s latest report on China and the 5 stocks to watch. If you want to read our detailed analysis of BlackRock’s Chinese stock picks and market outlook, go directly to BlackRock’s Latest Report on China and 10 Stocks to Watch.
5. Li Auto Inc. (NASDAQ:LI)
BlackRock’s Stake Value: $771.59 million
Number of Hedge Fund Holders: 24
Li Auto Inc. (NASDAQ:LI) is another Chinese automaker stock which features in BlackRock’s Q1 2022 portfolio, with 29.89 million shares valued at $771.6 million. The Beijing-based company offers smart electric vehicles equipped with ADAS (advanced driver assistance systems) under the Li ONE brand for its SUVs. As of May 16, shares of Li Auto Inc. (NASDAQ:LI) have gained 15.76% in the last 12 months, but slumped 32.53% in the year to date.
On May 11, Citi analyst Jeff Chung reiterated a ‘Buy’ rating on Li Auto Inc. (NASDAQ:LI) shares, and reduced the firm’s price target to $26.80 from $51.50. The firm’s first quarter earnings showed a stable free cash flow and ‘defensive’ margin trends, according to the analyst, who maintained his volume forecasts through 2024. But given the expectations of higher costs and growing R&D investment with new model launch, the analyst reduced his earnings estimates for 2022 and 2023 by 83% and 36%, respectively.
Investors were seen buying into Li Auto Inc. (NASDAQ:LI). 24 hedge funds reported bullish bets on the company shares at the close of Q4 2021, as compared to 20 hedge funds a quarter ago. Billionaire Jim Simons upped his stake in the Chinese firm by 162% to consist of 4.47 million shares valued at $115 million, making his hedge fund Renaissance Technologies the largest shareholder of Li Auto Inc. (NASDAQ:LI) at the end of the first quarter of 2022.
4. Pinduoduo Inc. (NASDAQ:PDD)
BlackRock’s Stake Value: $847.61 million
Number of Hedge Fund Holders: 34
Pinduoduo Inc. (NASDAQ:PDD) operates a mobile application-based e-commerce platform which offers a range of consumer products throughout China. BlackRock held 21.13 million shares of the firm at a value of $847.6 million, representing 0.02% of its total portfolio as of the end of the first quarter of 2022. At the close of Q1 2022, Bridgewater Associates was the leading shareholder of Pinduoduo Inc. (NASDAQ:PDD), with 4.93 million shares valued at $198 million.
On May 16, JPMorgan analyst Andre Chang double upgraded Pinduoduo Inc. (NASDAQ:PDD) to ‘Overweight’ from ‘Underweight’, and increased the price target to $55 from $27. Chang noted that the uncertainties faced by the Chinese internet sector were abating on the back of news that regulators are loosening oversight policies in response to slowing economic growth. In April, analysts from 86 Research and Goldman Sachs both gave Pinduoduo Inc. (NASDAQ:PDD) ‘Buy’ ratings.
Investors reduced their overall holdings in Pinduoduo Inc. (NASDAQ:PDD) at the close of the fourth quarter, where 34 hedge funds reported owning the company shares, as compared to 49 hedge funds in the preceding quarter.
Investment firm Tao Value mentioned many stocks in its Q4 2021 investor letter, and Pinduoduo Inc. (NASDAQ:PDD) was one of them. The fund said:
“On the detracting side, one of our largest detractors includes Pinduoduo (ticker: PDD). Pinduoduo (PDD) reported the second consecutive GAAP profit quarter yet missed on the revenue due to nation-wide consumption weakness & scaled back Sales & Marketing efforts. Market disliked it and the stock price plunged on the earnings. In my opinion, the accounting profits proved the original thesis of using S&M to acquire users and using great shopping experience to keep them. After realizing the first growth curve, Pinduoduo now shifted its focus & investment to agriculture. It is still very early, but the reduced size due to price drop warrants a position to watch and continue grow with such a team with strong culture.”
3. Yum China Holdings, Inc. (NYSE:YUMC)
BlackRock’s Stake Value: $1.33 billion
Number of Hedge Fund Holders: 26
Yum China Holdings, Inc. (NYSE:YUMC) is a food conglomerate which operates a number of brands in China, including KFC, Pizza Hut, Taco Bell, Little Sheep, and East Dawning, among others. BlackRock’s stake in the company amounted to 32.02 million shares at the close of the first quarter, representing 0.03% of its total portfolio and carrying a price tag of $1.33 billion.
In early May, the firm reported that the Omicron wave in China had caused significant volatility in its business operations during the first quarter, and this trend looks set to continue in the second quarter. The worsening US-China trade relations could also put further strain on the company shares. As of May 16, shares of Yum China Holdings, Inc. (NYSE:YUMC) have lost 19.43% in the year to date.
Out of all the hedge funds tracked by Insider Monkey, 26 reported owning stakes in Yum China Holdings, Inc. (NYSE:YUMC) at the end of the fourth quarter with a combined value of $842.5 million. This shows a downward trend from the preceding quarter where 30 hedge funds held $832.6 million worth of positions in the firm. Ray Dalio’s Bridgewater Associates held 1.62 million shares of Yum China Holdings, Inc. (NYSE:YUMC) at the end of the first quarter, with a price tag of $67.5 million, making it the firm’s leading shareholder.
2. NIO Inc. (NYSE:NIO)
BlackRock’s Stake Value: $1.35 billion
Number of Hedge Fund Holders: 30
According to 13F filings for the first quarter of 2022, BlackRock reported owning 64.58 million shares of NIO Inc. (NYSE:NIO) with a value of $1.35 billion, representing 0.03% of its gigantic portfolio. The firm is a manufacturer of smart electric vehicles based in Shanghai. Apart from its range of SUVs and sedans, it also offers services such as home charging, public charging infrastructure, battery swapping and auto financing.
In April, April, NIO Inc. (NYSE:NIO) delivered 5,074 EV units, showing a decrease of 49% from the previous month and a slump of 29% year-on-year. This was due to the firm’s production facilities being hampered by supply-chain problems caused the Covid lockdowns throughout mainland China.
However, BofA analyst Ming Hsun turned bullish on NIO Inc. (NYSE:NIO) on May 16. He upgraded the stock from ‘Neutral’ to ‘Buy’, whilst increasing the price target to $26 from $25. The analyst noted that shares of the Chinese automaker are trading at an attractive valuation, with strong fundamentals in terms of brand equity, sales growth, R&D capability, and improved cash flow. Lee increased the estimated sales volume by 3% and 8% for 2022 and 2023 respectively.
As of the end of December, 30 hedge funds out of the 900+ tracked by Insider Monkey were long NIO Inc. (NYSE:NIO), with aggregate positions worth $813.7 million. The same number of hedge funds were bullish on the company shares a quarter ago as well.
1. Baidu, Inc. (NASDAQ:BIDU)
BlackRock’s Stake Value: $1.59 billion
Number of Hedge Fund Holders: 38
Baidu, Inc. (NASDAQ:BIDU) is BlackRock’s largest Chinese stock holding, with 12.04 million shares valued at $1.59 billion. It is a tech giant often referred to as China’s Google, offering a range of services such as the Baidu search engine, online marketing services, content streaming, marketplace services, online encyclopedia, short video mobile application and artificial intelligence initiatives.
38 hedge funds reported owning positions in Baidu, Inc. (NASDAQ:BIDU) at the close of Q4 2021, with a combined value of $1.43 billion. This is down from 44 hedge funds with $2 billion worth of stakes in the Chinese tech giant in the previous quarter.
On April 28, Baidu, Inc. (NASDAQ:BIDU) received Chinese government permits to provide driverless cab-hailing to the public on open roads in Beijing, representing a milestone for the autonomous ride-hailing industry in China. The firm already boasts the largest autonomous driving fleet in China.
Mizuho analyst James Lee in early May gave Baidu, Inc. (NASDAQ:BIDU) a ‘Buy’ rating and revised the price target to $285 from $300. The analyst noted that internet companies in China may face challenges in the first half of 2022 on the back of Covid’s impact on business activities and consumer spending.
Investment firm Ariel Investments talked about Baidu, Inc. (NASDAQ:BIDU) in its Q3 2021 investor letter, stating:
“When we have such a high level of conviction for a company it is not uncommon for us to own it in size across our portfolios. Such is the case with technology giant Baidu, whose leading search engine has been dubbed the “Google of China.” This quarter shares sold off in sympathy with the Chinese internet sector as investors were rattled by the government’s sweeping regulatory crackdown intended to promote “common prosperity” by easing wealth inequality. While we recognize the greater political risk of investing in emerging markets such as China and incorporate an appropriately higher risk premium in the discount rate in our valuation models, we believe Baidu’s business strategy is aligned with national policies and prioritie and is therefore not adversely impacted unlike some other
players in the internet sector who are in the eye of the storm.Indeed, the Chinese government recognizes Baidu’s large, upfront investments in many next-generation artificial intelligence (AI) technologies and hails it as a national champion. For example, the company’s Advanced Driving Support System (ADAS), Apollo, has twice as much data on miles driven than any other initiative in the world, giving Baidu (and China) a large lead in the global AI arms race. In addition, Baidu’s cloud offering touts highly differentiated Platform as a Service (PaaS) features and capabilities for a demanding enterprise customer base. While these initiatives are a temporary drag on margins and require long-term execution, their success will bolster China’s “dual circulation” strategy aimed at spurring domestic demand, innovation and self-reliance.” (Click here to see the full text)
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